PROSECUTOR SAYS HE LACKS EVIDENCE TO CHARGE MEESE

By PHILIP SHENON, Special to the New York Times

Published: April 2, 1988

WASHINGTON, April 1—
The independent prosecutor investigating Attorney General Edwin Meese 3d announced today that, ''based on the evidence developed to date,'' he did not plan to seek an indictment of Mr. Meese.

The prosecutor, James C. McKay, stressed that the grand jury investigation of Mr. Meese in connection with a $1 billion Iraqi pipeline project and his personal investments in telephone company and other stock was not completed and that it would continue at least until the end of the month.

But the one-page written announcement was an enormous lift for Mr. Meese, who has been under mounting pressure from Capitol Hill and from within the Justice Department to step down. [ Text of the statement, page 8. ] Aides Say Meese Will Stay The statement came at the end of a tumultuous week in which the Deputy Attorney General and the head of the Justice Department's criminal division resigned, along with four of their aides, in what colleagues described as a protest over Mr. Meese's continued presence at the department.

After Mr. McKay's announcement, senior aides to Mr. Meese said that, barring the discovery of new evidence against him, the Attorney General was likely to remain until President Reagan's term ends next January.

''After today, it doesn't look like he's going to be indicted,'' one aide said. ''And I'm certain that unless he's indicted, he stays.'' Attorney General 'Gratified'

At a news conference, Mr. Meese himself said he was ''gratified'' by Mr. McKay's statement, and he indicated he would not resign. And in a taped television interview broadcast tonight, he said he was a victim of a politically motivated ''lynch mob,'' ''false accusations'' and ''incessant media barrages.''

The White House declined comment on the statements by Mr. McKay and Mr. Meese. Leslye Arsht, a White House spokeswoman, said that the President ''has always said he has confidence in Meese.''

Meanwhile, two department officials said Mr. Meese had already selected replacements for the pair of senior aides who resigned this week.

Mr. Meese, these officials said, has chosen Arlin Adams, a retired Federal appeals judge from Philadelphia, as the new Deputy Attorney General, and James I. K. Knapp, a tax prosecutor at the Justice Department, as the new chief of the criminal division.

In addition, the officials said, Francis A. Keating, Assistant Secretary for Enforcement at the Treasury Department, has been chosen to succeed Associate Attorney General Stephen S. Trott, the department's No. 3 executive, who was confirmed by the Senate last week for a Federal judgeship in California. A Rare Kind of Statement

A source close to Mr. McKay said tonight that today's statement by the special prosecutor had been requested by lawyers for Mr. Meese. The source said the Meese lawyers were informed last week of Mr. McKay's inclination not to seek an indictment.

Mr. McKay's statement was highly unusual; prosecutors are generally loath to make public comments about a continuing criminal investigation.

But Mr. McKay said he felt obliged to comment on the status of his 11-month-old inquiry ''because of recent media reports that an indictment is imminent.''

It was not clear to which reports Mr. McKay was referring, and his office declined to elaborate. Weld's Position Cited

But Justice Department officials speculated that Mr. McKay had been concerned over news accounts about the circumstances of this week's resignations by Deputy Attorney General Arnold I. Burns and Assistant Attorney General William F. Weld, head of the criminal division. In those accounts, department officials were quoted as saying that in the days before Mr. Weld resigned, he told colleagues that there might well be sufficient evidence for a grand jury to indict Mr. Meese.

Today's statement, which referred to Mr. McKay in the third person, said that ''based on the evidence developed to date, he does not intend to recommend that the grand jury return an indictment against Mr. Meese as to the 'Aqaba pipeline' matter or as to the matters relating to Mr. Meese's investments, including the so-called 'Baby Bells' matter.''

Three months ago Mr. McKay indicated he would not seek an indictment in connection with Mr. Meese's links to the Wedtech Corporation, a Bronx defense contractor that was involved in a kickback scheme.

The statement said that Mr. McKay ''emphasized'' that ''the grand jury's investigation is not yet complete as to these and other matters, and will continue at least through the end of April.'' Report Is Planned

Mr. McKay said that if the inquiry ended without a prosecution, his office would issue a report covering all the matters that had been under investigation. In such a case, he said, he will refer these matters to ''administrative authorities for review.''

In explanation, Federal investigators said Mr. McKay expected to forward the final report, including any information derogatory to Mr. Meese, but not criminal in nature, for internal disciplinary review by the White House and the Office of Government Ethics.

Federal investigators said the Iraqi pipeline, which was never built, had emerged as the main focus of Mr. McKay's inquiry.

The special prosecutor has attempted to determine whether Mr. Meese received improper payments in exchange for any effort to promote the project within the Reagan Administration. A close friend of Mr. Meese, E. Robert Wallach, had a financial interest in the proposal. 'My Intent to Carry On'

At his news conference, held in the Justice Department's cavernous Great Hall, Mr. Meese said that ''it is certainly my intent to carry on my duties as long as the President wants me to.''

Asked what circumstances would prompt his resignation, the Attorney General replied, ''I'm not going into hypothetical questions.''

He would say little about the departures of Mr. Burns and Mr. Weld.

''They've already indicated that they are resigning to go back into private practice,'' he said. ''Let me say that there were some basic differences as to the effect that recent events have had on the department. And beyond that I think their resignations are going to have to speak for themselves.''

Department officials said Mr. Meese was referring to his differences with his two aides over the impact of the Attorney General's legal problems on the running of the department. According to colleagues, Mr. Burns and Mr. Weld felt that the special prosecutor's investigation was undermining the department's work and the morale of prosecutors.

Mr. Meese also declined to discuss a report in The New York Times today that the department's fourth-ranking official, Solicitor General Charles Fried, urged him earlier this week to resign. Fried Issues Statement

In a cryptic written statement issued to reporters today, Mr. Fried, the Justice Department's chief advocate before the Supreme Court, said he would remain in his job ''while I am able to lead the office of Solicitor General with integrity and effectiveness.''

The two-paragraph statement offered no support to Mr. Meese, and it did not dispute the report that he had urged the Attorney General to step down.

''As for the Attorney General, I felt it was my duty to him and to the department to tell him clearly what course of action I thought he should follow,'' Mr. Fried said in his statement. ''I did that Wednesday in a private conversation.''

Aides said that three of the chairs had been meant to seat the replacements for Mr. Burns, Mr. Weld and Mr. Trott. Mr. Meese had wanted to announce the appointments today, but officials said the announcement had been delayed because of bureaucratic snags at the White House.

In his television interview, conducted by Barbara Walters and broadcast tonight on the ABC News program ''20/20,'' Mr. Meese said that ''the problems are not what's going on within the department or the leadership here.''

He said his problems actually resulted from ''false statements and false accusations on the outside.''

''I think it's very important, if we're going to make government safe for public officials, that no person should be able to be hounded out of office by false accusations, by incessant media barrages, many of them based on distortions and falsehoods, or by political attacks.''